Global Trends In Money Management: Guide To Increase The Efficiency Of Capital Usage

The focus must be on long-term value creation and not on capital "extraction". Therefore, the PCVs must be structured to incentivise the operators to maximise long-term value and not focus on merely creating large investment vehicles to generate high fees.

As the capital markets and businesses in India evolve, winners and losers in highly competitive markets will get determined by a variety of factors, including sources of funds. Pixabay

Global trends in money management and business efficiency are a useful guide to build and scale Indian businesses, especially to increase the efficiency of capital usage.

The one trend that has been in focus throughout the asset management industry, especially the private equity world, has been that of “permanent capital”. This is broadly defined as access to funds for long periods, instead of the usual seven to ten-year fund horizon that has been the norm in the private equity industry. Permanent capital funds focus less on exiting investments in a defined period – and the emphasis is more on generating potential long-run investment returns.

Investors have generated permanent capital through a variety of strategies. Some large investors such as the likes of Blackstone, Apollo & KKR have utilised Initial Public Offerings (IPOs) to generate capital they can then invest strategically. Apollo has also generated permanent capital through investing and managing assets for a retirement solution focused annuity business called “Athene”, which, through its annuity business, generates significant cash that Apollo has utilised to generate returns.

Access to a constant pool of capital has helped boost returns for both the capital provider and capital allocator.

The essential point to learn is that a higher degree of permanent capital allows businesses to access opportunities for longer time-periods, ride out periods of high market volatility and, most importantly, acquire assets at attractive valuations when rivals are unable to do so due to unfavourable market conditions or internal distress.

To frame the argument differently, firms that can have greater permanency to their capital or can unlock sources of permanent capital will have distinct advantages over their rivals. Pixabay

The lessons and advantages from permanent capital apply as much to companies as they do to asset managers. The vital question businesses must ask is whether they are building sources of permanent capital or, even better, are they improving the stability of cash flows available to the business – especially with a view on the next market downturn.

For a company or conglomerate, “permanency” of capital can be obtained through access to businesses that provide stable incoming cashflows. For instance, a firm focused on high-risk-return projects in the biosciences field must continuously evaluate whether it has a portfolio of royalty-generating patents that provide it with mission-critical capital inflows.

As mentioned earlier, in market downturns, stable cash flows can help shield businesses from the adverse funding conditions and assist a company in acquiring valuable assets across the industry. Most importantly, the steady incoming cash flows that provide the permanency of capital can assist a firm in continuing to pursue the high-risk-return projects that may yield significant investment returns in the future.

In a world where factors such as specialisation, patents and vertical integration can provide competitive advantages to firms, so can greater access to permanent capital. To frame the argument differently, firms that can have greater permanency to their capital or can unlock sources of permanent capital will have distinct advantages over their rivals.

For companies to succeed through permanent capital vehicles (PCVs), whether through private company platforms or structures such as Real Estate Investment Trusts (REITs), the aim must be long-term value-creation and not just short-term capital raising.

For instance, a firm focused on high-risk-return projects in the biosciences field must continuously evaluate whether it has a portfolio of royalty-generating patents that provide it with mission-critical capital inflows. Pixabay

Creating market credibility through both efficient capital usage and managing investor relationships is vital. For businesses that are exceptional operators, PCVs are the avenue to partner with patient capital providers to generate value for all.

For investors looking towards emerging markets such as India, PCVs are essential, especially in the context of relatively lesser secondary market liquidity, longer investment horizons for value generation and smaller size of debt capital markets. The utilisation of PCVs to hold on to investments longer for value creation could be a vital factor. However, it will be crucial that PCVs, when utilised by investors or companies to raise and manage capital, avoid the issues that have been prevalent in some cases.

The focus must be on long-term value creation and not on capital “extraction”. Therefore, the PCVs must be structured to incentivise the operators to maximise long-term value and not focus on merely creating large investment vehicles to generate high fees.

As the capital markets and businesses in India evolve, winners and losers in highly competitive markets will get determined by a variety of factors, including sources of funds. Both the quality and quantity of funding available will be one of the fundamental factors that determine long-term winners. Permanency of capital offers some essential insights into improving one’s competitiveness. (IANS)

Eddie Davis walks past tributes on his way to his son Jeremy's gravestone, who died from the abuse of opioids, July 17, 2019, in Coalton, Ohio. VOA

The tentative settlement involving the opioid crisis and the maker of OxyContin could mean that thousands of local governments will one day be paid back for some of the costs of responding to the epidemic families.

But for public officials in Akron, no amount of money will restore the families and institutions that were upended by prescription painkillers, heroin and fentanyl.

“The overwhelming sense of hopelessness that took over this community in 2016, you can’t monetize that,” former Assistant Summit County Prosecutor Greta Johnson told lawyers in a deposition in January. “Every single day the newspaper was reporting on the overdose death rates. You could not go into a community setting where there were not weeping mothers talking about their children.”

OxyContin maker Purdue Pharma struck a proposed deal Wednesday with about half the states and thousands of local governments over its role in the crisis. But criticism by several state attorneys general clouded prospects for an end to litigation against the company and the family that owns it.

Some people in Akron say the once-proud rubber capital of the world will never be the same. Hundreds of overdose deaths shattered families, orphaned children, exhausted first responders and drained government resources. At one point, city officials needed a mobile morgue to house all the corpses.

Ohio’s fifth-largest city, home to NBA legend LeBron James, and surrounding Summit County, population 540,000, were scheduled to be the first of some 2,000 governments scheduled to go to trial against drugmakers next month. Local officials sought damages from the manufacturers they hold responsible.

Overdose deaths — which hit 340, or nearly one a day, in 2016 — took a toll on the county medical examiner’s budget and her staff. At the height of the scourge, they often had to perform two or more drug-related autopsies in an average day.

Dr. Lisa Kohler, the county’s chief medical examiner, recalled “the mental stress of dealing with repeated cases of having multiple deaths in the same families over a period of weeks to months.”

The calls about overdose deaths were constant, and “it just felt like it was never going to stop,” Kohler said.

The need for the mobile morgue laid bare the devastating extent of the crisis. The trailers were originally intended for a mass-fatality event, such as a natural disaster, plane crash or terrorist attack.

Akron Fire Chief Clarence Tucker said it sometimes felt as if his community was under attack.

“We handle 45,000 calls a year, and it just kept climbing and climbing,” he said. The fire department had to accelerate maintenance schedules on vehicles, mobilize off-duty paramedics and cope with staff burnout.

The tentative settlement involving the opioid crisis and the maker of OxyContin could mean that thousands of local governments will one day be paid back for some. Pxabay

“You can get a call someone has overdosed and you get there, you can bring them back with Narcan. Then you’ll go to the same address in the afternoon,” Tucker said. “Or you go to that address in the morning and the two parents have overdosed and there’s a child there. It’s just horrible. It really is.”

Those dollars are intended to compensate for the many financial effects of opioids, including not only the demands on fire, police and medical services, but the crowded jails, the bulging foster-care system, the bursting drug-court dockets, the overloaded addiction programs and the inundated emergency rooms.

Summit County Common Pleas Judge Joy Malek Oldfield sees about 50 felony offenders in her drug court every Monday morning. It’s one of two drug-court dockets totaling 80 to 100 people, about double the number before the crisis.

“We’re nearing capacity for both dockets, and most of them are opiate-dependent,” Oldfield said.

In the past, most drug offenders used crack cocaine or marijuana, and “the treatment was tailored to those users,” Oldfield said. “If someone had a bad day and relapsed, they didn’t die.” But opioid addiction requires residential treatment, the judge said.

By October 2017, the opioid outlook was so bad that County Executive Ilene Shapiro declared an emergency, noting in her proclamation that “local response efforts have been exhausted and local resources in Summit County have been overwhelmed, and capabilities have been exceeded.” That year, the county saw another 269 overdose deaths.

“They’ve had to be everything. Not just law enforcers, but social workers and drug counselors, trying to hook everybody up with resources,” Morber said. “These poor young officers have done more death notifications in their short time span in 10 years than I have done my whole career.”

Thomas Heitic, chef and general manager of the Green Diamond Grille and Pub, said he hoped the settlement would offer more money for addiction counseling.

“Any of this money that goes towards awareness to me is a joke. We’re all aware of what’s going on. Our medical examiner had to bring in refrigerated trucks because the bodies were piling up. We’re constantly aware of this problem. We need to focus, use that money to focus on treatment.” (VOA)